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By Alasdair Pal

LONDON, March 7 (Reuters) - Global stocks and the dollar fell on Wednesday after a strong advocate of free trade resigned from the White House, fanning fears that U.S. President Donald Trump will proceed with protectionist tariffs and risk a trade war.

Economic adviser Gary Cohn, seen as a bulwark against protectionist forces within the Trump administration, said on Tuesday he was leaving, sparking a global sell-off across a number of major asset classes.

MSCI’s world equity index, which tracks shares in 47 countries, was down 0.2 percent, having seen some strength in Asian trading following news that South and North Korea would hold their first summit in more than a decade.

Wall Street’s fear gauge, the CBOE Volatility index, was up around 8 percent.

In Europe the continent’s car-makers, which face the risk of a hike in import tariffs to the United States, were among the worst performers, falling 0.5 percent. European stocks as a whole recovered some of their early losses to trade down 0.1 percent.

“The implication is that without the restraining influence of Cohn on Trump, the president will now have a free hand to press ahead with further tariffs and generally up the ante on trade,” said Neil Wilson, an analyst at ETX Capital.

“This in itself does not bode well for risk despite that small boost we saw on news that North Korea could consider de-nuking.”

RISK AVERSION

The U.S. dollar fell 0.4 percent against the Japanese yen — seen a safe-haven in times of uncertainty.

The dollar is just off a 14-month low against the yen hit on Friday.

“The worst outcome for financial markets, in terms of potential to create volatility, would be a confirmation of rising trade friction and benign neglect of the dollar in the short term,” said analysts at ANZ.

The Canadian dollar and the Mexican peso both retreated by more than 0.5 percent against the dollar as Cohn’s departure was seen as raising risks that Washington could walk away from NAFTA negotiations.

Copper on the London Metal Exchange lost 1.2 percent, paring a 1.4 percent gain from the previous session.

Currencies of commodity producers South Africa and Russia were both down more than 0.5 percent against the dollar, with the rand under particular pressure on falling reserves and business confidence.

European government bonds rallied, with yields across the euro zone falling by 1-3 basis points, following similar strengthening in U.S. Treasuries overnight. (Reporting by Alasdair Pal, Additional reporting by Hideyuki Sano and Shinichi Saoshiro in Tokyo Editing by Matthew Mpoke Bigg)